Financial Planning:
Choosing a Financial Advisor

Many people attempt to handle their finances completely on their own.  There is nothing wrong with this but the fact is an astute professional can help you make better and more intelligent decisions for very little cost.  Here is what you need to know about choosing a financial advisor.

The first subject on financial advisors you should understand is compensation.  Investment professionals are compensated in one of two ways.  And because the way they are compensated directly affects how they deal with you, it is very important that you know what they are.

The first way of compensation is the most adverse to the individual investor -- outside sales fees.  When an investment professional is compensated by an outside sales fee or a commission then in essence they are being paid based upon the financial investment you purchase from them.  As a result unscrupulous professionals may steer you into certain investments that are not in your best interest.   Therefore when dealing with such an advisor be wary of any recommendations they make until you are certain they have your best interest in mind.

The second type of compensation in the investment industry is salary based.  Straight salary usually insures that the financial advisor will have your best interests in mind rather than their own.   The industry term for these type of firms is "no-fee" brokers.  There are many of these types of firms to choose from.   A few of the better known are Charles Schwab and Fidelity Investments.  Do your own research and find a company that you feel comfortable with or that associates have had good experiences with.

Regardless of the above, do not refuse to use someone just because they are paid a commission.  Investment professionals are better compensated when they work for a firm that pays on a commission basis.  Therefore most of the elite investment professionals will gravitate to those type of firms.

The most important thing you can do when dealing with any financial professional, fee based or otherwise, is to ask for references and make an informed decision on the basis of the interaction you have with the advisor.  It is always wise to visit with an advisor on more than one occasion before actually investing money.  This helps you to get a better feel for how he or she operates as well as determine whether or not you will be comfortable with working with them for the foreseeable future of your financial life.

The next thing you need to be aware of when evaluating a financial advisor is education.  There are no specific education requirements for their profession though certain licenses do have an education requirement.  Find out the licenses the advisor has and what the requirements were for receiving that license.  Inquire about their history in the industry and how long they have been in the business.  All of these are important in finding a sound advisor.

Next you want to check on their history to make sure they have not had any problems with customers in the past.  You can do this by checking online at the FINRA (, which licenses all investment professionals who are licensed to deal with stocks, bonds or mutual funds.  If there is a complaint it will be listed in their database.

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.